Recession Obsession. The Energy Report 02/22/2023

The oil market still has a recession obsession. Oil prices were under pressure as rate fears are raising larger concerns of oil demand destruction even as the signs are showing just the opposite. Not only did JODI yesterday say that global oil demand hit an all-time high in December, but warnings from at least one Fed Official that the market is too pessimistic on the outlook for the economy.

Chief Executive Officer of the Federal Reserve Bank of St. Louis James Bullard says that the markets are overpricing the risk of recession. If that is the case, then oil is very underpriced. Oil prices have been held back on fears that rising interest rates will cause a recession and reduce demand. The comments gave oil a bit of a boost after selling off on a stronger dollar and weak treasuries.

Oil traders are still debating whether China’s reopening will leave the globe undersupplied. Argus Media is reporting that Opec secretary-general Haitham al-Ghais sees “positive signs” when it comes to the reopening of the Chinese economy but insists these should still be viewed with “caution” as those signs have not yet “physically materialized on the ground”.

Natural gas continues to crash, falling below the $200 mark for the first time since 2020. The total washout is happening because winter is among the mildest on record in terms of heating degree days. EBW Analytics points out that the cumulative 1,440 gHDDs for January and February is on pace for the second-mildest start to a new year in the past 43 years. This is a 5th percentile tail risk that has not only rendered early winter risk premiums unnecessary but sent prices plummeting in an attempt to ward of burgeoning surpluses.

On top of that the same thing happened in Europe. A warmer than normal winter in Europe saved them from disaster. Reuters reported that European countries slashed their gas use from August to January as unusually warm weather curbed household heating. Soaring prices curtailed industrial output and governments launched emergency measures to contain the energy crisis. Overall gas use in the 27-nation European Union plunged by 19.3% from August to January compared with the five-year average for the same period, according to data published on Tuesday by EU statistics office Eurostat. EU countries appear on track to overachieve their target to voluntarily cut gas demand by 15% from August to March – one of numerous emergency efforts introduced by Brussels and national governments last year to save fuel and replace Russian supplies with alternatives ahead of the northern hemisphere winter.

Fox Weather is reporting that a massive coast to coast winter storm will pummel millions with blizzard conditions and significant icing. Minneapolis could see 2 feet of snow. So we have that to look forward to.

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